Mr. Kiesner

Eco-Friendly Practices

Government Takeovers of Local Power Companies Pose New Risks, Costs for Hotels

By Steve Kiesner, Director of National Accounts, Edison Electric Institute

When uncertainty develops in the nation's power industry, and it certainly has these past few years, the prospect of the local government taking over the power company is sometimes raised. Takeover proponents promise lower prices and greater reliability, questioning the local electric company's ability to deliver what hotels and other customers expect-a reliable and affordable electricity supply.

But government takeovers aren't the answer. In the end, government takeovers of the local power company bring with them new risks and potential costs for hotel executives and all electricity customers.

To assure your hotel of a competitively priced power supply that is there when you need it, we need a national approach that includes three elements:

Government Takeovers Pose Risks, New Costs

Besides Las Vegas, ballots in a number of other communities looked at whether or not the local government should take over the power company. The results were mixed. In Florida, the towns of Casselberry and Longwood saw candidates who support municipal efforts win four of five races. San Francisco voters rejected an effort to acquire the local power grid. In Montana, voters defeated by a two-to-one margin a referendum that would have allowed the state to buy 13 hydro dams. And in early December, the city council of Corona, California decided to condemn the assets of the local power provider so that it could begin distributing electricity within the city limits.

What government takeover proponents didn't mention in these referendums was that many factors affect the price of electricity. Government control-of and by itself-will have no bearing on the price of power.

In the distant past, when the majority of government-owned utilities were established, cities typically had access to cheap, government-owned hydropower. This ensured a low cost kilowatt-hour.

But today, long-term contracts tie up federal power for decades into the future. A new government-owned utility today is not likely to buy or build its own power plants, given the cost and lengthy process involved, so it must buy power from the wholesale market-just like the local power company did. That means it would be facing the same risks. What guarantees can it over that its power will be cheaper the future? In fact, the American Public Power Association, the trade group that represents government utilities, found that in 2000, public power rates in 11 states were the same or higher than shareholder-owned utility rates for residential customers. The local government can artificially lower the electricity rates, but that only means taxpayers will be paying for it in another way.

Taking over a power company can also initiate costly legal arguments over whether the transmission and distribution assets-items with multi-million dollar price tags-should be bought at the lower book value or at the much higher market value.

Taxes are another issue to consider in government takeovers. To buy out a power company's local infrastructure, a city may have to raise local taxes, or perhaps more difficult, redirect money allocated for other projects, such as schools, public roads, or hospitals. And with more than 30 states now facing budget shortfalls, there will be extreme competition for all available revenues.

A municipality's tax revenues also suffer from government takeovers. When an electric company becomes a part of the local government, the taxes and franchise fees it used to pay won't be paid any more. This lost tax revenue adds to the overall cost of the takeover. To recoup those costs, government utilities often seek rate increases, leaving customers to foot the bill.

Beyond fiscal issues, another concern for hotel executives is who is watching over the government-owned utility. With a power company, third parties such as the state Public Utilities Commission and the Public Advocate monitor and control the prices that hotels and other electricity customers are charged for electric power. If a government owned utility takes over, it will mean the end of independent oversight. Instead, city or county commissioners, local politicians, and unaccountable government bureaucrats will control electricity rates.

A final question might be just how happy are you with government service in general? Would you want the city to takeover this critical function?

Electricity Demand Continues to Grow

The demand for power affects its price and its reliability. Demand has been growing at an average of two percent a year during the past two years. Although this is a bit lower than it was during the 1990s, it continues to rise. Looking ahead, the Energy Information Administration forecasts that in 20 years the nation will be using over 45 percent more electricity than it does today.

This underlying growth in electricity demand puts pressure on the country's electricity infrastructure. And this affects all electricity consumers. Switching ownership of the power company won't address this demand issue. What is needed is a new framework to meet the growing demand. America's power companies are working with federal regulators and legislators to create this structure.

Federal Actions Begun

Last summer, the agency that regulates the country's wholesale electricity market, the Federal Energy Regulatory Commission (FERC), presented a plan to standardize the rules that govern wholesale power markets on a regional basis. The hope is that this will lead to broader benefits and cost savings for all wholesale and retail customers.

America's electric companies believe FERC should adopt rules that:

Edison Electric Institute (EEI), the national association of shareholder-owned electric companies, is also working closely with Congress to advance a national energy strategy. The power industry needs a clear direction for the future to continue to provide an adequate, affordable, and reliable electricity supply for our customers.

Among our priorities are shortening the lengthy process for siting and permitting new plants and transmission lines. The growing demand for use of the grid is pushing it nearer to its limits. A FERC study found that transmission bottlenecks cost consumers in parts of the U.S. more than $1 billion over the past two summers alone. Without action now, these problems will only get worse.

Among our other priorities for national energy legislation are maintaining a diversity of fuel supply options. These include coal, nuclear, natural gas, hydro, and other renewables. A diverse fuel supply is essential for keeping electricity reliable and affordable.

EEI, along with the electric power industry, is also working to restore confidence among investors and the investment community. Investment is essential for building the power plants, transmission lines, and distribution systems the power industry needs to keep pace with demand.

The Role for Hotel Executives

Hotel executives have a part to play in maintaining an affordable and reliable power supply-energy management. Energy typically accounts for three to five percent of a hotel's total operating expenses. Getting the most value out of every energy dollar can improve profitability. It will also help power providers to use their generating stations and transmission lines more effectively.

Here are just a few quick and easy ways to start lowering a hotel's energy bills:

Power Company Assistance

The local electric company can often be a great resource in helping a hotel take control over its energy use. They will likely have historic data about how the hotel's energy use has grown. And they may be able to help the hotel save energy through incentives on energy-efficient equipment, discount electricity rate plans, energy audits, or a number of other ways. These all add up to helping the hotel to get more value from its electricity dollar.

If your business is one that has properties throughout a region or the country, EEI's National Accounts Network can help, and at no charge. The Network focuses exclusively on the needs of businesses with multiple sites or outlets. The National Accounts Network will help to arrange contact between your company's facilities and their local electric utilities. Your company will then deal with one contact per electric utility. Having a sole point of contact at a utility will save you from making many phone calls and dealing with utility reps at the utility's different field offices. The Network will also help you take advantage of any incentive programs or other services that may be available. The National Energy Customer Assistance Network (NECAN) directory is available online at http://www.eei.org/esg/na/necan/index.htm. This is a convenient guide to power companies serving each state and their National Accounts representative.

Proponents of government takeovers offer false hope for delivering the reliable, affordable power hotel executives and other electricity customers have come to expect. The good news is that the initial steps to fix the real issues challenging the country's power industry have been taken. And the best news is that when the journey is complete, the world's premier electricity system will be stronger than ever.

Steve Kiesner is Director of the Edison Electric Institute’s National Accounts Program. Based in Washington, D.C., Edison Electric Institute (EEI) is the association of United States shareholder-owned electric companies, international affiliates and industry associates worldwide. Our U.S. members serve approximately 90 percent of the ultimate customers in the shareholder-owned segment of the industry, and nearly 70 percent of all electric utility ultimate customers in the nation. They generated almost 70 percent of the electricity generated by U.S. electric utilities. Mr. Kiesner can be contacted at 202-508-5000 or skiesner@eei.org Extended Bio...

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